Business Aviation Advisor September/October 2015

September / October 2015

Mind the Gaps Aircraft Financing Rules Have Changed:

Are You Prepared?

Better Days Ahead for Business Aviation

Converging Conditions Lift Current Market But Continued Caution Counseled

Smooth Moves Less Vexation for Aviation Taxation Don’t Fly-By-Night Breaking Up is Hard to Do Aviation Safety Action Program A Business Aviation Media, Inc. Publication

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F e at u r e s Mind the Gaps

Aircraft financing rules have changed: are you prepared?

by M i c h ae l T. A m alfitano, S r .

Better Days Ahead for Business Aviation Converging conditions lift current market but continued caution counseled

by C h ar lie Hug h e s

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Smooth Moves

by Sue So m m e rs

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Less Vexation for Aviation Taxation

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by G ary I . Horow it z

BA A STAFF REPORT

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States give tax relief to business aircraft owners and operators

Take care when shopping for a jet card

Breaking Up is Hard to Do

by j e ff agur

FBOs keep you and your aircraft safe and on schedule

Don’t Fly-By-Night

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When your changing needs means changing management companies

D e pa r t m e n t s Publisher’s Message The Accidental Publisher

by G il Wolin

Washington Report

Aviation Safety Action Program

by Davi d Collog an

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The Business of Business Aviation The Information You Need, From Experts You Can Trust Aircraft owners and charterers now have a resource to help you make the most effective use of your investments in business aviation. Business Aviation Advisor provides the information you need, without technical jargon, on the business of owning and flying business aircraft – from operations to acquisition, to management and finance.

Business Aviation Advisor: the Business of Business Aviation

Subscribe to our digital edition at www.bizavadvisor.com/subscribe

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Publisher’s message ■ PUBLISHER Gil Wolin gwolin@bizavadvisor.com CRE ATIVE DIRECTor Raymond F. Ringston rringston@bizavadvisor.com Managing Editor G.R. Shapiro gshapiro@bizavadvisor.com Editorial Assistant Michael B. Murphy mmurphy@bizavadvisor.com washington editor David Collogan dlcollogan@gmail.com CONTRIBUTORS Jeff Agur VanAllen jagur@vanallen.com Michael T. Amalfitano, Sr. Stonebriar Commercial Finance, LLC michael.amalfitano@stonebriarcf.com Gary I. Horowitz HCH Legal, LLC ghorowitz@hchlegal.com Charlie Hughes Priester Aviation charlie.hughes@priesterav.com Sue Sommers Atlantic Aviation sue.sommers@atlanticaviation.com Business Manager JoAnn O’Keefe jokeefe@bizavadvisor.com Business Aviation Media , INC .

PO Box 5512 • Wayland, MA 01778 Tel: (800) 655-8496 • Fax: (508) 499-2172 info@bizavadvisor.com www.bizavadvisor.com Editorial contributions should be addressed to: Business Aviation Advisor, PO Box 5512, Wayland, MA 01778, and must be accompanied by return postage. Publisher assumes no responsibility for safety of artwork, photographs, or manuscripts.

Permissions: Material in this publication may not be reproduced, stored in a retrieval system, or transmitted in any form or by any means (electronic, mechanical, photocopying, recording, or otherwise) without the prior written permission of the publisher.

The Accidental Publisher I didn’t set out to be a publisher. I began my career directly out of college, to help business aircraft owners and users, pilots, and technicians – as well as the companies that sell to and support them – get the best return on their investments in aviation.

In 1999, after three decades working with manufacturers, charter and management companies, maintenance service providers, and FBOs, Business and Commercial Aviation magazine decided to tap me for my knowledge and experience as its publisher.

Over the years, I’ve witnessed many changes in our industry. Today, not only can you charter or own a fraction of or a whole aircraft, you can avail yourself of any number of new options, from prepaid charter and charter broker cards, to all-you-can-fly business aircraft airlines. Financing options expanded, then contracted. And since the economic crisis began in 2008, the conditions and assumptions under which owners buy, finance, operate, and sell aircraft have been dramatically transformed. Coupled with government and media demonization of “private jets” that same year (a result of the ill-advised trip to Washington in company jets by the “Big Three” automaker CEOs to ask for industry bailouts), it became clear that business aircraft owners and operators like you needed a new source of aviation information: one that focuses solely on the business – not the lifestyle – of business aviation.

And because aviation is not your primary business, it needed to be in plain English, without technical jargon. Enter Business Aviation Advisor, a print and electronic magazine in which experienced industry experts offer the insights and knowledge you need to fly safely, securely, efficiently – and yes, with privacy.

In our pages, you will not find articles on travel destinations or celebrity profiles. We do not accept advertisements for non-aviation, luxury products. What you will find are features and advertisements you need to make informed decisions about the best use of your business aviation dollars – to keep you abreast of those aforementioned transitions.

That’s exactly what you’ll find in this issue. Whether it’s how to respond to the transformation of aviation financing (“Mind the Gaps”), evolving aviation tax laws (“Less Vexation for Aviation Taxation”), the influx of new – and not always reputable – jet card programs (“Don’t Fly-By-Night”), or how and when to change aircraft management companies (“Breaking Up is Hard to Do”), the Advisor keeps you ahead of the curve.

While I didn’t set out to be a publisher, this transition best harnesses my 40+ years of business aviation experience – as well as that of our contributors – on your behalf. We know the Advisor is doing something right – your many calls, emails, and letters tell us so.

I continue to welcome your feedback – and thanks for reading!

The views and opinions expressed in Business Aviation Advisor are those of the authors and advertisers, and do not necessarily reflect the policy or position of Business Aviation Media, Inc. Articles presented in this publication are for general information and educational purposes and do not constitute legal or financial advice.

Postmaster: Please send address changes to: Business Aviation Media, Inc., PO Box 5512 • Wayland, MA 01778, USA

Gil Wolin — Publisher gwolin@bizavadvisor.com

©Copyright 2015 by Business Aviation Media, Inc. All rights reserved

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■ Aircraft Finance

Mind the Gaps

By Michael T. Amalfitano, Sr.

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Stonebriar Commercial Finance michael.amalfitano@stonebriarcf.com

n the past five to six years, the rules for aircraft financing have changed dramatically. Your excellent banking relationship, no matter how long-standing, now may not serve you as you seek to borrow for a new or pre-owned airplane.

Don’t be caught off-guard.

Currently, there are two big gaps in aircraft acquisition: 1) an Asset Gap, as you decide what airplane to buy, based not only on your travel requirements but also on what will best hold value, and 2) a Finance Gap, as you determine how you will pay for your new asset.

Examining the latter first, what do owners and operators need to know?

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Finance Gap Aviation is one segment of the commercial equipment finance market, a $900 billion market that has grown consistently during the past five years. Large banks and financial institutions have reduced their lending activity to some clients in this market, due to increasingly stringent, restrictive – and costly – capital and regulatory constraints set in place in response to the 2008 economic crisis.

Until 2008, there were three ways to pay for an aircraft: cash, borrowing from a bank, or from highly-regulated lenders. Like banks, these lenders are bound by the same government regulations, and like virtually all commercial banks, are publicly traded and so have a responsibility to shareholders.

The willingness of banks to loan money to finance aircraft traditionally was informed by the predictability of the residual value w w w. B i z AvA d v i s o r. c o m

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Aircraft Financing Rules Have Changed: Are You Prepared?

of the aircraft. Based on historical data and current trends, they could predict with reasonable certainty what the aircraft was likely to be worth in two to seven, or even ten, years.

Beginning in 2008, sales of new and used aircraft slowed, and in some cases, stopped. OEMs (Original Equipment Manufacturers) experienced negative sales – that is, more deals in progress were cancelled than new aircraft were sold. Banks holding a large number of leases were left with a huge inventory of aircraft to sell in a market with very few buyers.

For example, before 2008, a bank might have been willing to finance as much as $18 million of the $23 million purchase price for a new aircraft. But as some owners unfortunately experienced, the value of that aircraft may have dropped suddenly and radically.

That $23 million airplane’s value declined to $13 million, overnight. (See “The Changing Lending Climate,” BAA, Sept/Oct 2014, p. 14).

As a result of those sharp declines in aircraft residual values, banks also began to shy away not only from loans, but from business aircraft leases. Because so many of their leases were now upside down, several banks had to mark down the value of their corporate aircraft asset portfolios.

When the predictability of asset values became so uncertain, the government stepped in to protect shareholders with new regulations to make sure banks didn’t lend on risky assets.

years. This means that bank financing for the glut of higher quality, eleven-to-fifteen-year-old business aircraft, or even six-toten year-old aircraft, simply is not available.

Today, banks typically will finance only new or like-new assets, with minimal lending/leasing terms, to exceptionally creditworthy clients. They may offer low-priced financing in order to capture such highly-qualified new clients or to protect valuable existing relationships. This leaves small- to mid-sized private and public companies, as well as some high net worth individuals, seeking to purchase an aircraft with few banks willing to provide financing.

Many owners and operators have changed their buying habits as well, as many extend their periods of ownership beyond the historical five year average. Fractional operators too have increased their average aircraft ownership term, from four years to the current nine year average.

The gap is even wider for certain aircraft makes and models.

Until very recently, demand for light and mid-size aircraft has been weak, despite their still having strong economic useful life remaining. These aircraft represent 73% of the current fleet, according to JETNET. As a result of OEMs’ continuing introductions of new business jet models, the ongoing global demand for new large-cabin, long-

The willingness of banks to loan money to finance aircraft traditionally was informed by the predictability of the residual value of the aircraft Today, with the demand for new aircraft still lagging in every segment except for the large-cabin, long-range market, banks still cannot accurately forecast future aircraft residual values.

The pre-owned aircraft markets are particularly challenged by the inability to predict future residuals. In response, banks also have shortened the terms of loans and leases as a result of higher regulatory costs.

This may serve to explain the recent rise in buyers paying cash rather than financing their business aviation transactions: they have been unable to meet the new leasing terms and conditions.

At the same time, those highly-regulated lenders’ traditional competition – companies such as GE Capital and CIT – have been retrenching, either to focus on core businesses or to eliminate the increased expense of regulatory oversight. Some, like GE Capital, have decided to sell the bulk of their assets. At their peak, these lenders accounted for 32% of the assets in the equipment finance industry, according to the Equipment Leasing & Finance Association.

As these companies shrink their equipment finance businesses, and banks withdraw from the market, they have made room for new non-bank lenders to enter the commercial finance sector.

Asset Gap Banks and other regulated financial institutions typically also have credit and risk governance policies that restrict the age of the aircraft at lease and/or loan maturity to no more than ten w w w. B i z AvA d v i s o r. c o m

range aircraft, and evolving regulations requiring costly modifications to older aircraft, an aging inventory of used, but still capable, business aircraft sits idle in the for-sale inventory, with little or no capital financing available.

Filling the Gaps The equipment finance sector has weathered the credit financial crisis, due in large measure to its ability to evolve. Both the finance and asset gaps in the market can be filled by non-regulated, non-bank, commercial finance companies, able to offer greater flexibility in loan advance rates, terms, amortization, and aircraft age and usage, while still generating premium economic returns to their shareholders. Commercial finance companies, with capital backing from entities such as insurance companies, offer an array of well structured, secured loans and leases to public and private entities for both new and pre-owned aircraft.

For those who can mind the gaps, there are compelling industry dynamics and investment opportunities in the commercial equipment finance industry to bring aircraft financing back into balance. BAA Michael T. Amalfitano, Sr . is EVP & Senior Managing Director for Stonebriar Commercial Finance. With 33+ years of financial services experience, he previously led global corporate aircraft finance for Bank of America Merrill Lynch.

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■ industry update

Better Days Ahead for Business Aviation Converging Conditions Lift Current Market But Continued Caution Counseled By jeff agur ut together a group of business aviation advisors and brokers, and it will be no more than five minutes before someone asks: “What are you seeing in the market?”

Yes, we read all the press releases and we monitor data provided by the various analysts. But for those in the trenches who experience the market first-hand, we continually conduct our own informal polls. Based on both quantitative and qualitative data, here’s what owners and operators need to know right now: ■■ Confidence Is High – Confidence comes in a number of forms and has a trickle-down effect to business aviation. Even through moderate economic turbulence, companies have greater confidence that the U.S. and world economies are more predictable than during the past eight years. This, in turn, gives companies confidence to execute corporate strategies that include expansion and acquisition. Nearly all clients with whom we work are expanding in some form this year. In the business aviation market, this translates into a greater investment in aircraft: often a valuable tool for these corporate strategies. The byproduct of more aircraft transactions is a more stable, more predictable market which will help values and, ultimately, market confidence. What does this mean for you? With cautious optimism, you can develop business aviation strategies that support today’s confidence and growth. Plan ahead for a finite ownership period, have an exit or upgrade strategy, and be prepared to modify along the way, should economic conditions change.

■■ The Market Is Complex – A client once told me: “I’ve completed numerous corporate sales and acquisition transactions worth billions of dollars, and none were as complex as buying an aircraft.”

As an owner and/or operator, you are faced with an endless number of options. The choice of existing makes/models, new makes/ models, emerging technologies, and amenities all have their pros and cons. Regulatory and tax pitfalls abound and must be examined and managed closely. The selection of a safe, efficient operation can be daunting. You are best served by putting your focus on the most critical elements – those which could introduce operational or financial risk. Don’t let yourself get mired down in minor technical or cosmetic details. (See “Don’t Be Emotionally Compromised,” BAA May/June 2014, p. 13). In the final analysis, just about every aircraft could meet your mission, if you are willing to be flexible. Know what’s important to you, and what you can let go.

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■■ Exit Strategies Remain Difficult – In the past eight years, many companies took the position of “hold” and continued to operate their aging aircraft. As we now examine upgrade opportunities, the hold strategy can create a burden for transition.

Perhaps the aircraft is a pre-2000 vintage, and now is faced with costly upgrades to comply with the FAA’s NextGen navigation equipment requirements. Or its operating/maintenance costs are rising due to required engine overhauls or age-related major maintenance inspections, reducing the number of potential buyers and hindering the sale. Or quite simply, the aircraft’s fair market value is far lower than the book value, requiring your company to take a write-down; not a popular choice if yours is a publiclyheld company (See “Mind The Gaps,” p. 6).

Even if you’ve leased your aircraft, costly return conditions create a financial burden. Your role as Asset Manager is not only to preserve and maintain the value of the asset, but to adequately and proactively examine exit strategies that support your company’s goals. Just as with other parts of your business, your aviation strategic plan should look ahead one, three, and five years to anticipate changes with your business and the market.

With most world economies growing, and commercial airlines continuing to consolidate, the business aviation market is on the rise. With careful planning, you can take full advantage of the opportunities ahead. BAA Jeff Agur , CEO of VanAllen, handles fleet planning

and aircraft acquisition projects. This year, he supported the detailed planning and acquisition of more than half a billion dollars in jets, turboprops, helicopters, and fractional shares.

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VanAllen /jagur@vanallen.com

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■ ground services

Smooth Moves FBOs Keep You and Your Aircraft Safe and On Schedule ■■ Aircraft catering that is complete to your exact specifications,

and in full compliance with your and your passengers’ dietary requirements. The galley should be stocked with your preferred beverages, and the cabin with your favorite publications for inflight reading.

■■ Your car pulling up planeside as you arrive at your final destination, if requested prior to arrival, or hired car at your intermediate destination, appropriately equipped with GPS, baby seats, or other requirements.

■■ Facilities that are easily accessible and meticulously maintained. If you have planned a meeting at the FBO, a conference room will be reserved and ready with your audio visual needs, coffee, refreshments, and an onsite notary as required.

You Should Not Notice

Atlantic Aviation / sue.sommers@atlanticaviation.com

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hether you’re flying aboard your own aircraft, or using charter, fractional, lease, or jet card, you have made a significant investment in travel. You expect the very best service, both in the air and on the ground. Not only do you expect the best, you require it, because the time you save by flying aboard business aircraft can be lost via inefficient transitions from air to ground transportation.

The Fixed Base Operators (FBOs) at each airport are responsible for those transitions, as well as for any and all ground services that you, your aircraft, and your flight crew may need to complete your trip safely and efficiently: ground transportation arrangements, aircraft fueling, maintenance, deicing, hangar storage, and more.

More than 2,000 airports in the U.S. alone have runways capable of supporting business jet operations. Since many have multiple FBOs offering service, your flight crew and schedulers will select the one that best meets your specific air-to-ground transition requirements for that trip.

From the moment your car arrives at the FBO, some aspects of superior service will be quite noticeable, while others should not be apparent.

You Should Notice ■■ Privacy and anonymity. When you are boarding or deplaning your aircraft, the FBO staff should respect your privacy, and never engage in any conversations about your business or personal life, regardless of how often you use their facility. If you are a well-known public figure, they certainly should not approach you for autographs or photos.

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■■ Security cameras scanning the ramp 24/7, ensuring the safety

and security of your aircraft. At your home base airport, your car should be whisked away and parked in your hangar or a secure parking area, where again, you shouldn’t notice the security cameras scanning the lot around the clock.

■■ Training that supports every aspect of your interaction with FBO personnel, from safe fueling, aircraft towing and ground handling, to pleasant and efficient customer service, to line service technicians skilled in the refueling of more than 100 different business jet and turboprop makes and models.

■■ Safety officers on the ramp, watching every movement of every aircraft and monitoring fueling operations.

■■ The FBO staff on the phone, making your reservations for hotels, limo services, catering, or car rentals. You won’t notice your flight department’s calls to check on fuel price and parking fees, ensuring you are getting the best value.

■■ Emergency maintenance or required deicing performed if required before departure.

■■ Your flight department double checking, then triple checking every detail prior to your trip.

Each destination FBO becomes an extension of your own flight department. And your flight crew understands that for your travel to be smooth and efficient, they have to trust their chosen FBO to make your transition from air-to-ground travel seamless, safe, private, and secure. BAA Sue Sommers brings more than 25 years of aviation industry experience to her position as VP Sales and Marketing at Atlantic Aviation, where she oversees brand management, marketing, sales initiatives, and customer development.

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By Sue Sommers

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■ aviation law

Less Vexation for Aviation Taxation States Give Tax Relief to Business Aircraft Owners and Operators

By Gary I. Horowitz hile both business aviation and taxes benefit local economies, some states choose taxation over aviation.

Policies that encourage owners to hangar and maintain their aircraft in-state create revenue and jobs for FBOs, airports, and maintenance facilities. Five states recently enacted new tax laws that will benefit business aircraft owners and operators.

As of September 1, general aviation aircraft purchased or used in New York are exempt from NY sales and use tax, as are machinery or equipment purchased in NY for installation on general aviation aircraft.

Formerly, leases of certain aircraft in NY were subject to accelerated sales tax on the lease payments, requiring that all sales tax be paid on all such lease payments at the time of lease inception.

Now, sales tax on aircraft lease payments, if tax is still owed and not otherwise exempt, is not accelerated and sales tax is payable as lease payments are made.

Finally, certain aircraft transfers pursuant to a merger, contribution, or distribution between related parties now qualify as sales and use tax-free transfers in NY. Connecticut and Massachusetts have similar tax exemptions for most general aviation aircraft, so the new tax laws make NY more competitive with its neighboring states. It will be interesting to see what New Jersey, which still imposes sales and use tax on business aircraft, does in response to this change in NY. As of September 1, under new Texas law, aircraft purchases are exempt from sales tax under a “sale-for-resale” exemption when the purchaser resells or leases the purchased aircraft. This exemption applies even if the owner uses the aircraft, in addition to leasing, renting, or reselling it to another person, if more than 50% of the aircraft’s departures are made under the operational control of one or more lessees pursuant to a written lease that provides for some consideration.

TX also cannot assess sales tax on aircraft used by an affiliate after the owner paid sales tax on the aircraft’s purchase, or acquired the aircraft in certain exempt transactions.

The new TX law allows aircraft to be brought to, stored, or used in TX and not be subject to sales tax if the aircraft (a) was brought to TX for the purpose of being completed, repaired, remodeled, or restored; (b) was brought to TX by a person who had not acquired 12 B U S I N E S S AV I AT I O N A DV I S O R S e p t e m b e r/O c to b e r 2 015

it directly from a seller by means of a purchase; and (c) made more than half of its departures from locations outside the state for a year after either the acquisition of the aircraft or its first flight containing passengers or property, whichever date was later.

South Carolina recently passed a sales tax exemption on maintenance and repair (parts and supplies) performed on general aviation aircraft, which is expected to help attract business aviation activity to the state’s certified aircraft repair stations.

Formerly, only parts and supplies used to repair government and commercial aircraft were exempt from SC sales tax.

Qualified Nevada businesses that own, operate, manufacture, service, maintain, test, repair, overhaul, or assemble an aircraft, or any component of an aircraft, can apply to the Office of Economic Development for a partial abatement from certain property or sales and use taxes, if certain economic development thresholds are met.

Under a new Arkansas “flyaway” exemption for aircraft sales, certain sales by non-resident sellers to non-resident buyers are exempt from AR sales tax, if the aircraft will be based outside of AR, and the aircraft leaves AR after the sale or upon completion of maintenance or modification. AR also enacted a sales tax exemption for aircraft maintenance service (parts and labor).

Since more states are likely to change their tax laws for business aircraft in the future, aircraft owners and operators should continue to monitor these developments. BAA Gary I. Horowitz , cofounder and CFO of HCH Legal, LLC, is an attorney who provides business aircraft transaction and tax planning services to aircraft owners and operators.

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HCH Legal, LLC /ghorowitz@hchlegal.com

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■ alternative lift

Don’t Fly-By-Night Take Care When Shopping for a Jet Card BAA STAFF REPORT hole aircraft ownership may not meet your travel profile or your budget. Or you may own an aircraft and find, as do 25% to 30% of owners, that you sometimes need alternative lift. Charter and fractional ownership fill the gap for some, while others use the rapidly expanding number of jet card options.

Jet cards enable you to contract to pre-pay to fly for 10 to 50 occupied hours annually with no capital investment or long-term commitment. They can be a flexible and cost-effective option, particularly if your trips have various origin points, or if your intermediate stops require extended time on the ground.

You pre-pay for annual hours based on the size of aircraft you anticipate using most, drawing down on that deposit as you fly.

Most jet card companies will allow you either to extend your contract term, or to add the unused hours to your renewal commitment for the next contract year.

Scheduling a trip is similar to booking a charter flight. The main difference is that you book a category of aircraft, rather than a specific make and model. For example, “mid-size” can mean any one of an extensive number of aircraft models.

To meet your trip requirements, the jet card charter broker will vet potential charter providers, auditing them for operational safety and reliability as well as for financial stability. The broker depends on its ability to purchase “empty legs” (repositioning legs already paid for by another charter client) at a discount, and reselling them to its own jet card clients at contract rates.

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fly-by-night, Internet-only-based operations. If you do decide to shop on your own, be aware that jet card providers range from the excellent and reputable to the shoddy and frankly dangerous.

A number of new jet card apps promise to find you “a lowpriced seat on an empty airplane flying home.” These may be tied to unknown entities with little or absolutely no aviation background or experience. All they need to operate is a computer program that can scan online charter market sites, looking for low-priced trips.

With a jet card offered by fractional operators, you gain access to an entire fractional aircraft fleet with no capital commitment and no monthly management fee. In exchange, you pay a higher occupied per-hour charge. You commit to fly aboard a specific make/model aircraft in the provider’s fractional fleet, with the option to trade up or down on specific flights (with an appropriate adjustment to the hourly cost).

Since each program offers different benefits, and has various restrictions such as black-out dates and expiration clauses, matching your unique travel requirements to the right program can be a challenge. A professional aviation consultant can help answer your questions and determine which program is best for you.

All major fractional ownership operators, as well as many national and regional charter operators and charter brokers, offer a jet card option. And unfortunately, so do a growing number of 14 B U S I N E S S AV I AT I O N A DV I S O R S e p t e m b e r/O c to b e r 2 015

There’s no evidence that these companies do any due diligence whatsoever. They don’t own or operate the aircraft they are urging you to use – they simply shop for you based only on price and availability. The aircraft operators may not carry proper safety ratings from industry audit leaders Argus or Wyvern. The companies offer you no assurance of the maintenance condition of the aircraft, experience or training of the pilots, insurance coverage, or safety record.

While their websites offer superlatives about the company and its good deals, there usually is insufficient information about its leadership, how long it’s been in business, or how it guarantees the safety of aircraft it offers for rent.

Jet cards can be a convenient option for those who value safety and reliability above price. Doing research before you buy will help ensure your security. BAA w w w. B i z AvA d v i s o r. c o m

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Call (540) 905-4555 info@assetinsightinc.com Manage your aircraft as you do your other Financial Assets.

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■ Aircraft management

Breaking Up is Hard to Do When Your Changing Needs Means Changing Management Companies

By Charlie Hughes ometimes, relationships just don’t work out the way you expect them to. When might it be time to change your aircraft management company? When: ■■ You’ve upgraded your aircraft, and your current company is not experienced with that make or model.

■■ It’s not generating the amount of charter revenue you require.

■■ Recent personnel changes have undermined your confidence.

■■ The company is no longer financially stable. It’s not paying its bills or meeting payroll on time, risking your operational safety and aircraft asset value.

■■ It’s not paying attention to critical details. You feel like “just another client.”

The change process includes many of the same steps you used to make your original selection, with additional legal, financial, operational, and service delivery factors and challenges.

Legal and Financial – The “termination” language in your aircraft management and lease agreement (if applicable) should define the terms of transition in detail. You should expect: an accurate accounting of anything still owed on outstanding invoices, time for all vendor invoices to work their way through its accounting system, the return of any remaining operating deposit funds, and payment of any outstanding charter revenue earned if your airplane was on the company’s FAR (Federal Aviation Regulation) Part 135 Charter Certificate.

If you are retaining your current crew, employee health and retirement benefits should be covered and the transition to the new company handled seamlessly, to avoid any crew concerns.

Since the aviation legal and tax environment is complex and continues to evolve, be sure to engage a qualified aviation attorney to represent your interests. He or she should have a thorough knowledge of the FAA, DOT, IRS, and state tax guidelines for the state in which the aircraft owning and/or operating entity resides.

Your attorney should review and approve all agreements between you and the management company, hangar facility, and crew assigned to your aircraft.

Operational – Four factors will have an impact on your own or charter revenue flying.

1. Crew Retention – The prospective management company should welcome the opportunity to consider your current crew and confirm their credentials and cultural fit within the new company.

2. Crew Hiring – If a new crew is required, you and the prospective company together should define what constitutes a qualified and acceptable crew. It should provide a realistic time line for 16 B U S I N E S S AV I AT I O N A DV I S O R S e p t e m b e r/O c to b e r 2 015

recruiting and selecting your new crew, and help them make a smooth transition to you and your aircraft.

3. Training – Your crew likely will require some training before flying your aircraft, whether recurrent, new aircraft-specific, or as required by the management company’s operating procedures.

It should be scheduled to minimize interruptions to your flying.

4. Aircraft Transition/On-Boarding Process – The new management company should clearly define the requirements for your aircraft to make the transition (“On-Board”) to its operation.

What is needed to comply with the appropriate FARs, Part 91 for owner flying and Part 135 for charter? Which flight authorizations will move from your previous management company? How will it transfer all maintenance records and logbooks? Remember, these records are your property and are critical to the operation of your airplane.

Service Delivery – Since your service experience will be informed by how well the operations department performs in response to your travel requirements, you should plan to meet with your new customer service representative to define those requirements. Include your executive assistant or designated scheduler and your pilots, maintenance technician, and flight attendant at this meeting, so you all can set realistic expectations for aircraft and crew scheduling, communications, scheduled and unscheduled maintenance, specific traveler requirements, and afterhours contacts.

With careful planning and preparation, you transition to a new management company should be smooth and easy. BAA Charlie Hughe s is SVP, Aircraft Management Sales for

Priester Aviation. He has more than 20 years of aviation experience, having held executive-level positions in charter sales and client relations, as well as management sales.

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Priester Aviation / charlie.hughes@priesterav.com

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■ Washington REPORT

Aviation Safety Action Program A New Safety Tool for Charter and Corporate Operators

By DAVID Collogan safety improvement program that’s paid big dividends for the scheduled airlines and other large fleet operators for decades is now available for small and medium size Part 135 and Part 91 operators.

The Aviation Safety Action Program (ASAP) is administered by the Air Charter Safety Foundation under a Memorandum of Understanding (MOU) with the FAA. ASAP enables flight crewmembers of charter and business flights to file reports when they are involved in situations with safety implications or possible violations of FAA regulations.

Those reports are analyzed by an event review committee (ERC) comprised of FAA, company management, and participating employee group representatives (pilots, mechanics, etc.). After carefully reviewing the circumstances surrounding each report, the ERC decides on the appropriate course of action to mitigate or eliminate similar occurrences.

The U.S. aviation community spends billions of dollars annually training pilots, mechanics, and other employees in the interest of safety. Operators invest resources in developing standard operating procedures (SOPs) to provide a safety road map for employees to follow. FAA encourages the use of Safety Management Systems to identify and manage risks. Despite all those efforts, mistakes still happen, procedures are not followed, and safety is compromised. That’s where ASAP can help.

“The whole premise behind the program is determining root cause” of errors and mistakes, says Russ Lawton, ASAP program manager for ACSF. Most ASAP reports involve things like altitude deviations, navigation errors, or speed restriction violations.

“So, you just had a deviation. What was going on in the cockpit, what was happening?” said Lawton.

Filing an ASAP report provides crewmembers with immunity from FAA for inadvertent, unintentional violations of the Federal Aviation Regulations, to encourage people to speak up when something goes wrong.

“Being forthright and honest, it leads to better procedures, better training,” Lawton said, and helps prevent the same mistakes from being repeated. And that makes the operating environment safer for everyone.

Such reporting programs have been used by the employees of major airlines and other large-fleet operators for the past 25 years, generating tens of thousands of reports that alert the carriers and FAA to problems that can be addressed by changes in training and procedures.

ACSF officials wanted to provide a way for smaller operators to gain the benefit of similar feedback, and began working closely 18 B U S I N E S S AV I AT I O N A DV I S O R S e p t e m b e r/O c to b e r 2 015

with FAA in 2012. With encouragement from FAA senior management in Washington, officials of the agency’s Great Lakes Region headquarters got the ball rolling. ACSF signed an MOU with the Great Lakes Region, and operators who wanted to participate in ASAP then signed MOUs with their local Flight Standards District Offices (FSDOs).

Six of the eight FAA regions in the lower 48 signed ASAP MOUs, and ACSF officials are hopeful the other two – Northwest Mountain and Central – will sign on later this year.

As of mid-summer 2015, there were 16 operators enrolled in the ACSF-administered ASAP – 12 Part 135 charter operators and four Part 91 corporate flight departments. Over the past three years, employees of those 16 operators have generated nearly 300 ASAP reports. There are another 15 operators in various stages of the MOU/employee training process that should be participating before year’s end.

ACSF President Bryan Burns said the program is structured so ACSF, not FAA or the operator, shoulders 90 percent of the administrative burden. The price to participate is based on the number of employees in a company and is designed to cover ACSF’s costs, not make a profit. “In all respects, it’s a win-win for all parties involved,” Burns said.

In addition to encouraging employees to report safety issues, Lawton says ASAP participation results in a lot of information sharing among companies and safety administrators. “People network and really get a lot out of it,” he said. BAA David Collogan has covered aviation in Washington, DC

for more than four decades. This award-wining journalist is known as one of the most knowledgeable, balanced, wary, and trusted journalists in the aviation community.

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dlcollogan@gmail.com

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